Wednesday, December 4, 2013

Morgan Stanley loses local arbitration case

TWO NORTHSIDERS are part of a group that won a $388,000 award in an arbitration against the local Morgan Stanley office, and five more arbitrations are coming down the pipeline.


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Madison attorney Judson Lee represented the five claimants in the first arbitration and will also act as co-counsel with Northside attorney Kim Breese for claimants in the next two cases.

The arbitrations – basically settling a dispute outside of the court system – are happening because many Mississippians who had “managed money” accounts with Morgan Stanley in 2008 and 2009 lost more in the stock market than they should have, and did not get it back when the market rebounded.


Lee explained that in 2007, Morgan Stanley began handling managed money accounts, or discretionary accounts, in which the financial advisor makes all the buying and selling decisions for the client after the initial investment.

In contrast, most people who invest with firms like Morgan Stanley or Edward Jones have what is called a brokerage account, in which the broker must contact the client before buying or selling.

“With a discretionary account, you’ll have some very intensive meetings and the advisor will build you a portfolio based on what you want. Then the advisor will make all the decisions about when and what to buy and sell,” Lee said.

“That comes with a fiduciary duty for the advisor to act in your best interests instead of his own. It’s a huge responsibility.”

Approximately 150 Mississippians had discretionary accounts with the Ridgeland office of Morgan Stanley in 2008, when the market “cratered,” Lee said.

“This group of clients did worse than the market overall in 2008. The market might have lost 38 percent, 30 percent, and these people lost more like 50.

“That’s plausible with a recession, but then the next year, when the market shot back up, the market gained back 30 to 35 percent, and these clients only went up maybe four percent.”

LEE’S CLIENTS found that their discretionary accounts were not personalized at all. “They were one-size-fits-all. The advisors were buying all the same stocks for different people with a computer program. So the portfolio for an 80-year-old widow and a 45-year-old surgeon might look the same,” Lee said.

Since Morgan Stanley clients sign arbitration agreements that prevent them from filing lawsuits against the firm in court, they can file for arbitrations instead.

FINRA, the Financial Industry Regulatory Authority, handles the arbitrations, which are a lot like court cases but are decided by a panel of three arbitrators instead of a judge and jury. And FINRA is not a government agency, Lee said.

FINRA generates a random list of arbitrators, and each side gets to strike people from the list. Then the arbitration is held, often at a hotel.

“FINRA will select a hotel with conference facilities, like the King Edward or the Marriott downtown,” Lee said. Lee’s clients claimed Morgan Stanley and two of its financial advisors were liable for negligence, gross negligence, suitability, fraud, and breach of fiduciary duty. On June 24, arbitrators gave Lee’s five clients a $388,000 award against Morgan Stanley to compensate them for their losses.

(The five clients were related to each other by blood and business ties. Two were from the Northside, two from Booneville, and one from Bay Springs. Their names were not immediately available at press time.) Lee said the next arbitration against Morgan Stanley was set to resume this week, and another should begin in December. Most of the claimants in future arbitrations are Northsiders, he said.

This post is a paid advertisement. This story first appeared in the Northside Sun and was written by Katie Eubanks. It is reprinted with permission of the Northside Sun.

26 comments:

Anonymous said...

Is it possible for MorganStanley to appeal an arbitration decision?

Anonymous said...

Huge story. Some 150 clients with losses totaling maybe $50 million.Inexcusable.

Anonymous said...

3:09- almost impossible to get reversed on appeal.

Anonymous said...

Yes, you can appeal an arbitration award to federal court, but the standard for a reversal is very, very high - the court must find that the decision was arbitrary and capricious before it can be reversed. So, chances of a reversal are very slim.

Does anyone know who the arbitrator was?

Anonymous said...

5:17- I think actually the standard is. "Manifest disregard", which is even tougher b

Anonymous said...

... Sorry, not even manifest disregard:

"Section 10(a) of the FAA provides only four limited grounds for vacating an arbitrator’s decision: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators, or either of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, in refusing to hear evidence, or any other misbehavior that prejudiced the rights of the parties; or (4) the arbitrators exceeded their powers or so imperfectly executed those powers that a mutual, final, and definite award was not made. 9 U.S.C. § 10(a)."

Anonymous said...

This is a huge loss for the bank. Not readily appealable and attorneys fees come with the award..which will not be small.

Lawyers in MS and AL went nuts for arbitration...this is the back side of it...ouch.

One thing to watch however...the arbitrators will never, ever arbitrate again.....

Anonymous said...

"The arbitration was conducted by the Financial Industry Regulatory Authority (FINRA)." They'll arbitrate again, when they're assigned. This isn't "Tommy's a good ole boy" arbitration. And frankly, do we know if Morgan got off cheap?

Anonymous said...

10:19 you missed the point...the arbitrators are agreed upon by the parties..in the future these arbitrators will not be acceptable to the bank

Anonymous said...

Who's the guilty broker in Jackson? Probably that husband/wife team that looks like a "real estate sales team". Amateur hour.

Anonymous said...

7:08 AM - If you'll look at the ad in the story, it's Steve Wyatt and (Mr.) Hilary Zimmerman. Wyatt is gone, but Zimmerman is still there.

Anonymous said...

10:19 You are wrong.

The parties must agree to the panel members.

These guys who arbitrated will never get a nod to arbitrate by defense lawyers ever again.

Flaw in the system.

Anonymous said...

8:21- Could be, but leaving aside the chance that the parties may can't agree to anyone else, it's still quite possible that on the facts, this was a fair result. Butler-Snow types aside, defense counsel know some cases are losers, and don't lose their minds when that's the result.

Anonymous said...

One major flaw of arbitration is the attorneys do not have to follow the rule of law. I have seen lawyers pull shenanigans of fraud in arbitration hearings that could risk disbarment if utilized in a court of law.
Arbitration can get to be a bit of a circus given the wrong attorneys.

Anonymous said...

12:17 is exactly right.Morgan Stanley hires wildly expensive out of state lawyers who specialize in defending these giant banks/brokers against a retail local client who really got shafted by MS. These out of state mouth pieces know there is no FINRA jail and create defenses that require the local MS employees to do some serious prevaricating.

Anonymous said...

What is little known is that the brokers involved got paid a huge
bounty to move their registrations from Smith Barney
to Morgan Stanley in December
2007. Wyatt got $2000000 cash up
front and Zimmerman got $1600000. Of course they got this because they were expected to persuade their clients to move firms with them (clients got $0 for moving and they had their accounts blown up over the next FOUR years). Clients were never informed by Wyatt and Zimmerman that the $millions were the reason for the move. Whether Wyatt and Zimmerman lost their windfalls along with their clients by managing their own $ so negligently is yet unknown.

Anonymous said...

Have Wyatt and/or Zimmerman been sued individually by anyone - clients, Morgan Stanley or insurers? I can't believe they will be able to hang onto that money if they still have any.

Why is Zimmerman still at Morgan Stanley? I find that really strange.

Anonymous said...

Morgan Stanley needs to "Man Up" and give these people their money back. They lost the money because they obviously did not know what they were doing. Pay it back with interest!

Anonymous said...

Why aren't these yahoos, Zimmerman and Wyatt, not in jail????

Anonymous said...

This is typical big business BS. They never care about the little guys. Just self serving money hungry cooperations that bus in the lawyers when they are caught with their pants down!! Shame on you Morgan Stanley!

Anonymous said...

Since the Arbitration Panel works for FINRA and FINRA is supported by the brokerage firms, there is no way this can be fair!

Anonymous said...

Why does this behavior by big business not surprise me? Why don't they ever just do what is right?

Anonymous said...

4:23 Because people are people and that has not will not change either as individuals or as part of BIG BUSINESS(or small).








b

Anonymous said...

The word out is that more claims against MS to be filed soon

Anonymous said...

Were these the only two Morgan Stanley money managers who are accused of this? How do you know if you had a "managed money" account?

Anonymous said...

I have known "Father" Zimmerman for over 20 years. Considered him a trusted friend and advisor.He never told me he was changing firms because of getting millions - just that it was best for me (the client). Worse was that he keep advising me to stay with Wyatt, Morgan Stanley, and him. Now I find out he removed his personal money from his partner's management while telling me and many others to stick with Steve Wyatt. Is that legal??

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